Publicis-Omnicom merger: The deal that helps its rivals, too

Maurice Levy (L) , French advertising group Publicis Chief executive, and John Wren, head of Omnicom Group react during a joint news conference in Paris, July 28, 2013.

Not all merger deals leave competitors as major beneficiaries, but the Publicis-Omnicom
tie-up has spread waves of optimism through the advertising industry. In a surprise move, the two companies revealed over the weekend that they would be teaming up to create the world\’s largest ad agency, in the biggest deal ever in the industry.

But instead of posing a threat to Madison Avenue rivals, the merger of equals is a win-win situation, analysts believe — mainly because other large players could pick up accounts from client conflicts within the new Publicis Omnicom Group.

\”In our view, the combined company is likely to lose some clients as a result of the merger. If anything, the merger provides an opportunity for advertisers to review their agencies in order to get a better deal, and we wouldn’t expect the new Publicis Omnicom Group to win all the reviews. This should benefit Havas
, Interpublic
and WPP
unless they decide to engage in a merger of their own,\” analysts at Barclays said in a note.

At Goldman Sachs, analysts also sketched out how the proposed deal would be positive for the industry, saying \”the revival of the sector consolidation theme and potential disruptions arising from the proposed merger process would benefit other major players.\” The bank didn\’t make any changes to ratings of the advertising firms, but said it\’s reviewing its estimates and price targets. For now, Goldman Sachs has Havas on its conviction buy list and WPP rated at buy.

So far, stock investors have in general reacted positively to the deal. Shares of Havas rallied 4.3% on Monday, Interpublic added 5.5% while WPP rose 0.6%, with the latter supported by an upgrade to buy from neutral by UBS. Shares of Publicis gained 1% and Omnicom traded 1.7% higher in the U.S.

If the Publicis-Omnicom marriage proceeds as planned, the new group will have a combined market capitalization of $35.1 billion, overtaking current market leader WPP. Right now, U.S.-based Omnicom and France\’s Publicis are the second and third largest ad companies by revenue.

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